Ecuadorian dollarization
Ecuador adopted the United States dollar as its official currency in 2000, replacing the sucre after a severe financial and currency crisis.
Ecuadorian financial crisis of 1998–1999: A banking and currency crisis that sharply reduced Ecuadorian output and destabilized the sucre in 1998–1999. The crisis eroded confidence in the sucre and made dollarization politically viable.
United States dollar: The official currency of the United States and a widely used international reserve and transaction currency. Ecuador made this currency its legal tender and monetary unit.
Inflation in Ecuador: Changes in the general price level in Ecuador over time. Inflation fell markedly after the transition, though adjustment took several years.
Currency board: A monetary arrangement that fixes a domestic currency to a foreign currency and backs its issuance with reserves. Unlike Ecuador’s full adoption of dollars, a currency board retains a distinct domestic currency.
Optimum currency area: A geographic region in which sharing a currency can improve economic efficiency without excessive adjustment costs. The framework asks whether Ecuador is well suited to sharing the dollar without common fiscal institutions.
Ecuadorian sucre: Ecuador’s former national currency, replaced by the United States dollar in 2000. Its rapid depreciation preceded the switch to dollars.
Central Bank of Ecuador: Ecuador’s central bank, responsible for monetary statistics, financial-system functions, and reserve management. It retained institutional roles but lost the ability to issue a national currency at will.
Ecuadorian economic crisis of 1999: A severe recession in Ecuador marked by bank failures, currency collapse, and a sharp decline in living standards. The crisis was the immediate economic setting for adopting the dollar.
Managed float regime: An exchange-rate system in which a currency mostly floats while authorities sometimes intervene. A managed float preserves exchange-rate and monetary tools that Ecuador relinquished.
Economic shock: An unexpected event that changes economic conditions, such as demand, supply, or financing costs. Dollarization leaves Ecuador to absorb shocks without nominal exchange-rate adjustment.